in order to escape the sanction of expulsion, which would have the effect of permanently excluding FCCB from the futures trading industry. Id. n.10. After MidAmerica took disciplinary action against FCCB, FCCB sought review before CFTC.
Although MidAmerica did not have a specific rule stating that a member cannot withdraw, CFTC concluded that MidAmerica's Rule 304.B bound each member to exchange rules for events occurring during membership until the proceeds of membership sale were released. FCCB at 33,799. Furthermore, CFTC noted that MidAmerica's Rule 309.A authorized the exchange to retain the proceeds of a membership sale until all outstanding disciplinary charges are resolved. Id. Reading Rules 304.B and 309.A together, CFTC reasoned that MidAmerica's rules envisioned an opportunity for the exchange to discipline a former member for violations that occurred during their membership. Thus, MidAmerica retained disciplinary jurisdiction over FCCB through invocation of Rule 309.A. Id. CFTC further reasoned that this interpretation of MidAmerica's Rules served the principle of exchange self-regulation, a basic tenet of CFA, which would be circumvented if an exchange member could escape sanction through resignation. Id.
CBOT contends that FCCB is analogous to the present case, and that the principle of self-regulation would best be served if CBOT's disciplinary action were upheld. However, we agree with CFTC's reasoning that the present case is distinguishable from FCCB.
Unlike MidAmerica, CBOT does not have a rule authorizing the retention of membership sale proceeds. At the time Sanders sold his membership, CBOT Rule 251.01 only prevented the sale of a seat under certain conditions. Since these conditions were not applicable to Sanders, Rule 251.01 was not triggered. Further, MidAmerica chose to retain the sale proceeds while it investigated FCCB. CBOT, on the other hand, did not take any action to prevent the distribution of Sanders' sale proceeds. Therefore, Sanders was not prevented from selling his membership, and CBOT lost disciplinary jurisdiction over him when it released the proceeds of the sale of his membership in January 1988.
CBOT also argues that allowing Sanders to avoid sanction by escaping the literal terms of the rule subverts the principle in FCCB that a member accused of wrongdoing should not be allowed to evade disciplinary action by resigning. However, the integrity of congressionally mandated self-regulation cannot be preserved by allowing an exchange to ignore its own rules. In FCCB, MidAmerica did not ignore its rules in order to discipline its former member.
Thirdly, CBOT argues that the CFTC ruling setting aside CBOT's disciplinary action should be overturned because CFTC failed to give proper deference to CBOT's interpretation of its rules. CBOT interprets Rule 251.01 to require a knowing waiver of jurisdiction, even after a member sells his seat. CBOT asserts that without knowledge of Sanders' fraudulent conduct, it could not have waived its disciplinary jurisdiction over him.
There is support for the proposition that an exchange's interpretation of its own rules is entitled to deference. See Case and Co., Inc. v. Board of Trade, 523 F.2d 355, 363 (7th Cir. 1975) (deferring to exchange interpretation of its rules giving exchange broad and flexible powers to insure an orderly market); Fogel v. Chestnutt, 533 F.2d 731, 753 (2nd Cir. 1975) (exchanges have a "substantial degree of power" to interpret their own rules in the context of methods used to recapture brokerage commissions), cert. denied, 429 U.S. 824, 50 L. Ed. 2d 86, 97 S. Ct. 77 (1976); Moses v. Burgin, 445 F.2d 369, 382 (1st Cir. 1971) (exchange interpretation of "antirebate" rules, which served to restrict recapture of brokerage commissions, was entitled to deference). However, these cases are factually different from the present case. Unlike the cases cited, this case involves a disciplinary proceeding, which must be undertaken "solely in accordance with the rules of that exchange." 7 U.S.C. § 12c(1)(A) (1988). Thus, these cases are not persuasive.
If Congress intended absolute deference to an exchange's interpretation of its rules, the scope of CFTC review of exchange decisions would be quite limited. Even if CFTC should give deference to an exchange's interpretation, it appears that CBOT never interpreted or addressed Rule 251.01 in its disciplinary decision to expel and sanction Sanders. Consequently, we find that CBOT's after-the-fact interpretation of Rule 251.01 was not entitled to deference by CFTC and should not be given weight by this court on review.
Finally, CBOT argues that where an exchange's rules are ambiguous or silent, the exchange should be allowed to interpret its rules in accordance with the CEA. There is merit in allowing exchanges "broad and flexible powers" to "insure an orderly market" in cases of emergency. Case and Co., Inc., 523 F.2d at 362. However, in the disciplinary context, some measures of fairness must prevail, and the CEA commands that disciplinary acts should only be taken in accordance with the stated rules of the exchange. To allow CBOT to ignore its rules in the present case would have the effect of extending CBOT's disciplinary jurisdiction to virtually all former CBOT members who may be later accused of some wrongdoing during their membership. This court is not prepared to take that step.
For the foregoing reasons, we conclude that the CFTC ruling vacating CBOT's disciplinary action was not arbitrary, capricious, or an abuse of discretion. Further, we find the action was in accordance with the law. Therefore, we grant defendant CFTC's motion for summary judgment. Plaintiff CBOT's motion for summary judgment is denied.
GEORGE M. MAROVICH
UNITED STATES DISTRICT JUDGE
DATED: April 6, 1993